Safe withdrawal ideas, thoughts and provocations

Financial Independence/Retire Early -- Learn How!
hocus
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Post by hocus »

I won't show up at hocus' forum for those who reject "conventional methodology"....

ES sent me an e-mail response to my question re setting up an "SWR Research Group" board. There are two options available to me re the new board:

1) a board where people could participate only by invitation. This type of board would not be visible to the general public.

2) a board that would be visible to the general public and where anyone could participate but where I would serve as moderator and possess the power to delete posts.

My expectation is that I will open the new board early next year. I have not decided on which of the two formats described above to employ.

The new board would be something in addition to what we have now. The existing FIRE board would of course remain in place for any who wanted to discuss SWRs but not on the new board.
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ataloss
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Post by ataloss »

You say that numerous data "would indicate" a number between 2 percent and 2.5 percent. Why "would indicate?" The number is the result of calculations performed on data, is it not? Why not say "the data tells you" or "the data reveals" or "according to the data, the number is such and such?" Why the weasel phrase "would indicate?"

I think it is because you are concerned that someone might look at that number and mistakenly take it to be a prediction of an actual rate of return. You and I know it is not that. A SWR is not an actual return. But you and I are the sort of people who do not like the advice we use to be put to purposes in which it will do others harm. So we are cautious in how we say things, trying to anticipate mistakes that others might make and to do what we can to help others not fall into such traps. .................



Look at what happened to Bernstein. He is another person who I would describe as being on the cautious side. He didn't say that "the SWR was 2 percent at the top of the bull market." He used a weasel phrase, like you did. He said it might have been as low as that. Was he right to put it that way? Arguably not. He used data to come up with the number. The number was produced as the result of a mathematical calculation. Perhaps he should have said the SWR was 2 percent.

I know why he worded things the way he did, and so do you. The two of us have struggled with what is involved with speaking accurately on this issue, and we are aware of the damage that can be done by speaking carelessly. So I can not find it in my heart to find fault with Bernstein for his caution. He doesn't want to mislead, he doesn't want to express greater confidence in the SWR tool than he believes it deserves. He knows what the data says, but he also feels a desire to be fair in how confidently he states things.


I think that Bernstein and Raddr are cautious in what they say because they know that "calculations performed on data" by no means assures that the result will correspond to reality. I see neither of them claiming something like:

SWR analysis, when it is true to what the data says, is different.
What the data says is not a matter of opinion. Data analysis involves
numbers. Data is hard, objective. You add up all the numbers that bear on the question being examined and you get a right answer to the question posed.


Does it seem absurd that the less mathematically attuned person is the most confident of the result?

I really doubt that there is any hope for explaining the reality of Monte Carlo analysis to hocus. It has been attempted.

I couldn't resist borrowing Gummy's gif about math black boxes
Have fun.

Ataloss
therealchips
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Disaster Drills and Retiring with Minimal Capital

Post by therealchips »

Hocus posted
There are people registered to this site who are facing a potentially troubled future because of their reliance on the conventional SWR methodology. Andrew61 is one that comes to mind. He retired in 2000 on a plan without a lot of slack. Should he be taking steps to return to the workforce today? Probably he should be, if what I am saying is on the mark. We really need to know for sure so that someone like Andrew61 doesn't get himself in any deeper of a financial mess due to his reliance on what studies posted on internet discussion boards tell him about the historical data, don't you think?

Andrew61 is not a cartoon characrter. He is a real person. I believe that we have an obligation to the Andrew61's of the world to try to get this right. People say all the time "it's only a discussion board, what difference does it make?" What if Andrew61 has kids and what if they don't get to go to college because the FIRE discussion boards gave bad advice on the SWR question? Is that no big deal? I say it is a very big deal indeed.

If you have that obligation, it is because you have taken it upon yourself. That is public spirited since you are under no coercion.

If the man retired on a plan without a lot of slack, he shows a rashness that may put him beyond your ability to help. I went to sea as a young man and learned the ancient Naval principle -- "Preserve your maneuvering room." Certainly, it was beyond my ability to influence Andrew, although I did what I could without addressing him in particular. I posted at least four times on the subject of a disaster drill, in which suddenly half of the present retirement stash disappears overnight. (I recall that AngelMay's reaction to that idea was that she would fall over in a dead faint.) The references and dates are
http://boards.fool.com/Message.asp?mid=12291510 disaster drill
http://boards.fool.com/Message.asp?id=1380520000022001 disaster drill 3/28/00
http://boards.fool.com/Message.asp?id=1380025000651002 disaster drill 2/23/00
http://boards.fool.com/Message.asp?id=1380025000547002 disaster drill 2/14/00
(I don't have access to these messages.) I'm not the only one who came up with the idea of this 50% disaster, but I invented it independently. Sad to say, that loss resembles my results from 2000 - 2002, but this did not push me back into the workforce. :DThat 50% correction is something like Petey's idea of marking down the value of equity retirement assets to reflect historical average price/earning ratios if the present ratio is twice the historic one. If Andrew's results have been worse than a 50% loss, I take it he was not well diversified and needed to read the posts on retiring with a concentrated portfolio. I skipped those posts and I don't know what advice they offered.

My own influence is so slight that I withdraw my unsolicited suggestion about the tone of your remarks. You are not likely to be less persuasive than I have been. :roll:
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]

Chips
[KenM]
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Post by [KenM] »

hocus
I fully believe that you are very sincere in your beliefs and I accept that you have been treated badly on another board, but lately you, yourself, appear to have become more and more intolerant of others' comments and your statements appear to have become wilder. It's becoming increasingly more difficult to remain sympathetic with your point of view.

I'm no expert but, to me, all, and I repeat all, of the conventional studies on SWRs based on historical data are expressed in moderate and reasonable terms. They are not a recent innovation but as far as I am aware (there may be others) go back to the Harvard study in 1973; Bengen 1994; Trinity 1998; Jarret/Stringfellow 1999; Armstrong 1999 and, of course, REHP. Generalising, they all indicate an SWR of about 4%. Within the context of historical studies they are most definitely valid and it would be absurd to say that they are not. The infamous REHP study gives a variety of scenarios, considers alternative portfolios other than S&P500/bonds and includes a considerable amount of useful information. It does not say that there is one, and only one, SWR and that it shall be 4%. I quote from the study:-
This study is based on historical data...past performance does not guarantee future results. While there is every reason to believe that investment returns in the next 125 years will be similar to the previous 125 years there's little chance that it will be EXACTLY the same. To say that 3.89% is a "safe" withdrawal rate and that 4% will leave you broke implies a measure of accuracy in the forecast that just isn't there. It may make more sense to say that the "safe" withdrawal rate going forward lies somewhere in the range of 3.25% to 4.25%.
Note that "safe" is expressed as "safe".

Reference your statement that
And we are not in this matter talking about someone offering a crazy personal opinion on the internet. People offer crazy personal opinions on the internet all the time. We are talking here about presumed :"experts" claiming to have looked at historical data and claiming to report that data to the public.
It appears that you are, in fact, only talking about crazy personal opinions on the internet and, although very unfortunate, I'm amazed that people would be naive enough to follow such crazy opinions. All the actual studies, including those both by respected academics and by REHP, are couched in terms sufficient to cause any reasonable person to implement an SWR strategy with care based on the findings of the studies.

Therefore, IMO, all these studies, most definitely including the REHP study, are valid. The fact that we now have an extreme event outside the historical range merits updating of the studies' results. However if we are going to do that then we also need to consider the potential effect of other possible extreme events e.g. extreme inflation, extreme deflation etc. It really comes down to pulling a rabbit out of the hat. There are many rabbits in the hat - you just have to pull out the rabbit that, to you, looks the healthiest/prettiest/fattest depending on your inclinations :)

In an attempt to be constructive, perhaps you can explain why you accept
I think that it is fair to compare what a SWR analysis does to what a weather report does...... The weather-man does the analysis and he reports that there is an 80 percent chance of rain tomorrow

but that you demand an SWR must be an absolute figure and don't accept "weasel" wording from Berstein and raddr such as "might be as low as" or "would indicate" . These are only expressions of probability similar to weather forecasts.
I also find it difficult to accept your point that
The reasons why the conventional SWR methodology is invalid is because it does not even take into account the effect of changes in valuation levels
Historical studies obviously take into account the changes in valuation levels and the extremes that have occured historically wthin the study period. It is only the extremes of a few years ago that have not ben included. An update is necessary.
KenM
Never try to teach a pig to sing. It wastes your time and annoys the pig.
peteyperson
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Post by peteyperson »

Hey Chips,

I'm actually expecting to agree with a lot of what Bernstein says. I will want to see how he gets his figures though. I think I may be buying the Asset Allocation book after for more background.

I do think that something around 2% w/d rate is likely to be very safe. That works out to be 50x budget. You could retire at 50 with that and finance a lifestyle to 100 years of age, however you could arrive at it another way by treating the 50 years of funds as 50 slices of a cake, taking one slice a year and leaving the remainer to add more frosting from your returns (hocus's analogies must be catching!) I think if I were to take a 2% viewpoint to be ultra safe, it might be nicer mentally to just think of the latter example. Less manouvering around, just a simple:

"Take one year's budget + inflation, leave the rest of the investment + its return that year in the fund pool."

You would also only need to get around 4% gross return across your spread of assets to cover inflation, investment costs and some taxes where applicable. What you may well find in that example that you don't end up spending down the money 1/50th a year, as the return will likely exceed the very modest expectations when a 50/50 stock/cash split has generated 6.5% in the past.

I can only assume that if you're working from 1.6% w/d rate upwards, that you have a seven figure stash at work for you :shock:

I was thinking last night that if you began with say 30x spending and a 50 year outlook, you're playing the game with sweaty palms. If you get a good enough overall return, you spend that less inflation. If you don't do as well, you eat into your funds and later there are fewer funds, fewer numbers of shares owned that can rebound. Furthermore, you have less assets to generate the original investment return you were relying on, so you're likely to eat into your stash more as the years go on. Seems like a slippery slope, but I wasn't sure which was worse. I don't necessarily think that planning to eat into your stash is smart but you may end up doing so if the market produce less and if your asset allocation & investment return outlook was too optimistic from the start of FIRE. For many who don't have the time/don't earn enough to save 50x spending, they'll just have to do the 30x and take their chances I think.

We'll have to disagree on the P/E arguement. Revert to the mean and average values seem a fair way to use to value business when viewed over 200 years. Put another way, if you cannot determine what is a fair price for a stock, you're left buying the whole market via dollar cost averaging to avoid having to make the decision. The problem there is that you won't know when you're at a good or poor valuation to know when to sell during FIRE. You don't know what is sea level. Given that, how could anyone invest in stocks without understanding their intrinsic value first? How does Warren Buffett? Does he just guess? I think not. He talks of intrinsic value in his writings, speeches & AGM frequently. He's made a career out of buying companies when they were undervalued but solid companies underneath. So, to me, the idea that you cannot value a business accurately is disproven by those who have done it for 50 years straight! If I could not use that approach, then I would be looking at buying assets that produce dividends, rental income and the like and where the fair value of the asset is less of an issue that owning it and what it throws off in spendable income during FIRE.

Petey



therealchips wrote: Hi, Petey,

You said
I have Four Pillars arriving Friday in the mail.

The intrinsic value on a P/E basis is in fact the average P/E ratio over 200 years of investing. So it in fact works along the lines you are happy to work within.

May I quote Bernstein and Malkiel without anyone supposing that I think their authority, or any authority, gives the final answer to important questions? My purpose here is to show that my doubts about the notion of intrinsic value come from widely respected men and not just my own investment experience. Page 55, middle of the page, Four Pillars of Investing has this (where the brief quotation does not, I think, distort the context of the original and readers will judge the matter for themselves) :
The discounted dividend model is a powerful way of understanding stock and bond behavior. As we've seen, it isn't of much use in accurately predicting the fair value of the market, let alone a stock. Princeton economist Burton Malkiel famously stated that "God Almighty himself does not know the proper price-earning multiple for a common stock." In other words, it is impossible to know the intrinsic value of a stock or the market.

(I can't find that "famous" statement on the internet. Too bad.) Bernstein then goes on to say that the discounted dividend model gives us the Gordon equation which is useful for estimating the long term expected return of the market. He puts that estimate at 6.5% as of the publication date, 2002, and seems to mean something like "thirty years" as long term.

Back to the point: The idea of intrinsic value of a stock or a market is dubious to many people. As you disagree with Bogle, I predict you will disagree with Bernstein, too.

Beside the point: I won't show up at hocus' forum for those who reject "conventional methodology", except in the totally unexpected case that someone invites me there. This is not because I embrace the conventional methodology and its 4% withdrawal rate, but only because I'm still asking questions that hocus is tired of answering.

Let me tell you how seriously I dissent from the 4% canon. My planned withdrawal rates are 1.5% in my sixties, 1.6% in my seventies, 1.8% in my eighties, and 1.9% in my nineties, with a real expected return in the market of 2% for the next thirty odd years, constant after-tax inflation-adjusted standard of living, and fairly flat purchasing power of the total retirement stash over the duration of the plan. I think that 2% assumption is absurdly pessimistic for such a long time period, even with today's high price-earnings ratios, but I'm being cautious. Bernstein's 6.5% is more plausible. If he turns out to be correct, I'll let my standard of living float up a bit over the years, or maybe I'll just leave that much more in the estate for the next generation. I never bought into the canonical notions of using up the stash during retirement or of freezing the real withdrawals regardless of market activity.
peteyperson
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Post by peteyperson »

Hocus,

Screening off people who disagree is not a good way to proceed. You end up in a cult situation rather than a reasoned debate. What do you do when someone in the group disagrees on something else, throw them out?

I understand you want to reach a consensus that intercst's work is invalid and move onto better ways to approach the subject. Solving the riddle of how to work these issues out will in turn illuminate for all the validity of intercst's work (if they accept the new way of calculating the result).

The second way is much more efficient.

Petey


hocus wrote: I won't show up at hocus' forum for those who reject "conventional methodology"....

ES sent me an e-mail response to my question re setting up an "SWR Research Group" board. There are two options available to me re the new board:

1) a board where people could participate only by invitation. This type of board would not be visible to the general public.

2) a board that would be visible to the general public and where anyone could participate but where I would serve as moderator and possess the power to delete posts.

My expectation is that I will open the new board early next year. I have not decided on which of the two formats described above to employ.

The new board would be something in addition to what we have now. The existing FIRE board would of course remain in place for any who wanted to discuss SWRs but not on the new board.
peteyperson
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Post by peteyperson »

Ataloss,

I have to disagree with some of what you posted below.

In recent posts on the board between hocus and myself, it has become perfectly clear that hocus understands the limitations of using backward-looking data to predict future results. Indeed, you cannot predict them. You can only use them as a good indicator.

You're using the quote by hocus below to muddle the situation. Hocus was stating below that excluding certain data to get a result you prefer is an invalid methodology. Chips has been adding that if it gets close to the same result give or take a known margin, then that is an acceptable fudge (fudge was my word added to Chips's ideas). Chips makes a solid point though knowing the variance in the analysis that makes it inaccurate but acceptably so seems to be a worrying approach to take to a critical life decision of quiting a job you cannot usually get back at the same salary etc.

So Hocus was not saying that you can determine the future results and the actual safe withdrawal rate, but merely that you need to use all available valid data to generate a theoretical safe withdrawal based on past data (with the acknowledgement that it may not pan out out way, any resemblence to people real or imagined is purely coincidental!)

You're either not getting his point clearly or you're deliberately muddling it to try and confuse people. Either way, you need to consider the points above and get clear so we can move forward.

Petey


hocus wrote: SWR analysis, when it is true to what the data says, is different. What the data says is not a matter of opinion. Data analysis involves numbers. Data is hard, objective. You add up all the numbers that bear on the question being examined and you get a right answer to the question posed.

ataloss wrote: You say that numerous data "would indicate" a number between 2 percent and 2.5 percent. Why "would indicate?" The number is the result of calculations performed on data, is it not? Why not say "the data tells you" or "the data reveals" or "according to the data, the number is such and such?" Why the weasel phrase "would indicate?"

I think it is because you are concerned that someone might look at that number and mistakenly take it to be a prediction of an actual rate of return. You and I know it is not that. A SWR is not an actual return. But you and I are the sort of people who do not like the advice we use to be put to purposes in which it will do others harm. So we are cautious in how we say things, trying to anticipate mistakes that others might make and to do what we can to help others not fall into such traps. .................

I think that Bernstein and Raddr are cautious in what they say because they know that "calculations performed on data" by no means assures that the result will correspond to reality. I see neither of them claiming something like:

Does it seem absurd that the less mathematically attuned person is the most confident of the result?

I really doubt that there is any hope for explaining the reality of Monte Carlo analysis to hocus. It has been attempted.

I couldn't resist borrowing Gummy's gif about math black boxes
peteyperson
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Re: Disaster Drills and Retiring with Minimal Capital

Post by peteyperson »

Shock. Horror. Let me sit down to read that.

:lol:

Petey


therealchips wrote: I'm not the only one who came up with the idea of this 50% disaster, but I invented it independently. Sad to say, that loss resembles my results from 2000 - 2002, but this did not push me back into the workforce. That 50% correction is something like Petey's idea of marking down the value of equity retirement assets to reflect historical average price/earning ratios if the present ratio is twice the historic one
peteyperson
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Post by peteyperson »

Ken,

Excellent post, mate.

Whilst I've yet to appreciate the specifics of why the intercst study is considered wrong by hocus, I think one of his larger objections is the way intercst is perceived to state the actual safe withdrawal rate on message boards but without the nicely worded qualifier. It would be better for intercst to quote the rate to answer the poster's question but include the disclaimer (if you will) to explain how far you can take the % suggested and the considerable limitations of such a "forecast". He rarely does that. Often it is a one liner, " The safe withdrawal rate for that would be.. "

I would also avoid using the word forecast as that suggests more accuracy than is necessarily present.

I liked your comparison with all the different studies over the years and how they all came up with similar conclusions. A strong case you might say.

Do you happen to have links to online versions of any/all of those? I would be interested to read them.

Petey


KenM wrote: hocus
I fully believe that you are very sincere in your beliefs and I accept that you have been treated badly on another board, but lately you, yourself, appear to have become more and more intolerant of others' comments and your statements appear to have become wilder. It's becoming increasingly more difficult to remain sympathetic with your point of view.

I'm no expert but, to me, all, and I repeat all, of the conventional studies on SWRs based on historical data are expressed in moderate and reasonable terms. They are not a recent innovation but as far as I am aware (there may be others) go back to the Harvard study in 1973; Bengen 1994; Trinity 1998; Jarret/Stringfellow 1999; Armstrong 1999 and, of course, REHP. Generalising, they all indicate an SWR of about 4%. Within the context of historical studies they are most definitely valid and it would be absurd to say that they are not. The infamous REHP study gives a variety of scenarios, considers alternative portfolios other than S&P500/bonds and includes a considerable amount of useful information. It does not say that there is one, and only one, SWR and that it shall be 4%. I quote from the study:-
This study is based on historical data...past performance does not guarantee future results. While there is every reason to believe that investment returns in the next 125 years will be similar to the previous 125 years there's little chance that it will be EXACTLY the same. To say that 3.89% is a "safe" withdrawal rate and that 4% will leave you broke implies a measure of accuracy in the forecast that just isn't there. It may make more sense to say that the "safe" withdrawal rate going forward lies somewhere in the range of 3.25% to 4.25%.
Note that "safe" is expressed as "safe".
hocus
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Post by hocus »

Screening off people who disagree is not a good way to proceed.

It might help people to understand better where I am coming from with my ideas for the new "SWR Research Group" board if I put forward a little bacgorund on the purposes that I am hoping it will serve.

My ultimate goal is to take over as the Board General at the Motley Fool board. Way back in 1999, I began thinking that it would be good if the community of people interested in FIRE had access to a discussion board where they could share insights on the subject. That's why I put all that effort into building up the REHP board back in the year 2000. I wasn't building up that board just so that it would serve as a learning resource for a few months or a year. I wanted it to serve as a learning resource for many years to come, for decades into the future. I very much want aspiring early retirees to be able to use that board for that purpose.

I believe that the community there is strongly behind me on this issue. You can arrange the posts there according to the number of recs received. If you do that, and you look for a common theme in the most recommended posts, what do you think it is? The most common theme is "Could we please have more on-topic posts here and less of the poltiical junk?" People have been saying that for years now. They really, really want it to happen Obviously it will never happen so long as intercst remains.

That's what The Great Debate has been about from the beginning. The substance question--whether the conventional SWR methodology is valid or not--is an extremely important issue in its own right. But it is not the most important question on the table. I did not put forward my May 13, 2002, post primarily for the purpose of getting input on what the true SWR is. I am glad that we have received such input, there has been some wonderful research put forward. But getting such input has never been my primary motivation.

I put that post forward because I saw that the board was dying for lack of on-topic debate. I didn't suddenly discover on May 13, 2002, that the conventional SWR methodology was invalid. I knew this back in the mid-1990s, when I researched the SWR question for purpose of putting together my own Retire Early plan. What happened in May 2002 is that I reached a conclusion that the benefits to the FIRE movement ("the Wave" I call it) that would follow from coming forward with a post on the realities of SWRs were now greater than the drawbacks that would follow from coming forward. Prior to that, my assessment was that the drawbacks of coming forward were greater than the benefits.

My sense is that the NFB community has a greater interest in the substance issue than in the process issue. That's OK. That's allowed. But that is not my focus. My focus is taking over control of the other board. As interesting as the SWR question is to me, to me it is an issue of secondary importance. If I take over the TMF board, I believe that we will learn all we need to learn about SWRs and all we need to learn about hundreds of other critical FIRE issues as well. Taking over the board is a process matter, while the SWR thing is a substance matter. In my experience advances in the area of process usually have far more long-term impact than advances in the area of substance.

I'm saying this just so that you have a sense of the thought process that I will be using as this thing advances. My question is always "how will what I do today influence growth of the Wave?" Each day I wake up and ask myself "how can I best use the hours available to me today to make the Wave grow bigger and sooner?" Then I do that stuff. When the hours of the day are all used up, I go to bed and rest up for the next day, when I get to start all over again.

The ultimate goal is to grow the Wave, and a critical goal serving the ultimate goal is taking over the Motley Fool board. A secondary critical goal that needs to be achieved if I am going to take over the Motley Fool board is for me to achieve a consensus at this board that the conventional SWR methodology is invalid. Do you see how all the various goals fit together like pieces in a puzzle? The picture you see when the puzzle is complete is the picture of a big blue wave forming somewhere out on the horizon line.

Gain a concensus that the conventional methopdology is invalid, and there are all sorts of exciting things that I can do to serve my goal of taking over as Board General at the TMF board. I don't want to detail them all now, that would be a long, long post. But the Easterling thing is an example of the sort of thing I am talking about.

Easterling will come here and give his expert opinion on some questions bearing at least indirectly on the SWR matter. If that works, I will invite some others. Scott Burns is the one that I think should probably be next in line. Then probably William Bernstein. Then gummy. Then some others. Ultimately, I will invite the guys who did the Trinity study and those who did some of the other studies using the conventional methodology. Do you see how getting these sorts of people to state in public that the conventional SWR methodology is invalid will help me pursue my various goals?

It may be that Scott Burns will not say that the conventional mthodology is invalid the first time he comes to speak here. Given the early reactions I have heard from some others, that seems entirely possible to me. I hope he says it is invalid right off the bat, but I'm certainly not counting on it. So Scott Burns says he thinks the conventional methodology is valid. Then what do I do?

I keep building the case. I find out from our conversation with him why he is reluctant to say that the conventional methodology is invalid, and I develop materials that address those points. Perhaps I ask him back here six months later, and this time he agrees that the conventional methodology is invalid. A case like this has to be built brick by brick by brick, in my view.

The purpose of the SWR Research Group board is to aid me in my efforts to build the case. If Easterling says something that we hadn't thought of before, and that we need to address to advance the case, we need a place where we can go to build our arguments on that particular question. We can discuss the general SWR question at this board. We don't need a separate board for that. The separate board is intended to serve a particular purpose, and I think it helps to have means available to me to insure some structure for the discussions held there.

If I exclude someone from the new board, it doesn't mean that I don't like him. It doesn't mean that I am saying that he does not have a right to his views. Of course he has a right to his views. But I don't see that people expressing the view that the conventional methodology is valid will help me in my goal of taking over the TMF board. One of the core purposes of the new board is to help me in that quest.

Now., I am not going to exclude people from participation at the new board just because they don't agree that I should try to take over the TMF board. I will take help from anyone willing to provide it. If intercst himself asks to participate at the new board, I will welcome him so long as he is making contributions that help me achieve my goals re this matter. I won't be excluding people because of any personal antagonisms. For one thing, I don't have negative feelings on a personal level towards anyone in the FIRE community. For another, I don't think it would be a good idea to allow such personal considerations to influence my board administration policies.

But I do think it makes sense to exclude or include people based on the sorts of contributions they will be making. I want to advance the case that the conventional methodology is invalid.I don't want to spend too much more time discussing whether it is invalid or not. That distracts me from doing the things I need to do to achieve my purposes. Others may talk over those sorts of things at places other than the new board, I have no objection to that. But I have serious doubts as to whether it is a good use of my time to devote too much more energy to questions that theb FIRE community has been examining in great detail for 14 months now. At some point someone just has to draw a line, you know?

The new board is something in addition to what we have now. If a newbie joins the community and wants to know why I think the conventional methodology is invalid, I may well take the time to answer any questions he or she has on the FIRE board. I am not trying to block people from discussing the matter. I think it's healthy for people to hash it out. I'm all for it.

But I think that I can do more for the Wave by moving this debate to a new phase. The focus of the discussions at the new board will not be what to do re the intercst matter. I expect that will come up from time to time, but I think that the focus for the short term needs to be on questions of substance. This community has more interest in substance at this point, in my assessment, so I think I need to work with that. I believe that once we have at least a small group of people assured that the conventional methodology is in fact invalid, I may be able to develop more interest in taking steps re the process issue. I sure hope so.

Anyway, that's a little bit of background on where I am coming from with this thing. That's why I see it as a good idea to set up a new board with either restricted membership or at least restricted areas of discussion. The idea is not to subtract anything from what we have now. The idea is to add something new and exciting to the mix.
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Post by peteyperson »

Mr Hocus,

I think you have a limited viewpoint on a lot of the issues discussed. This doesn't always leave a lot of flexibility in discussions.

I see the "experts" invitations as a good thing, if only because it will give you the opportunity to hear other people. I'm finding I'm reading "experts" and then ripping to shreads at least some of what they are saying. This is perhaps inevitable but still surprises me. I was the kid in school who wasn't hot on math and now who reads people with 50 years of investing experience and I can see the errors in their approach, or I'm able to go beyond what they've said & construct improved ways of dealing with old problems :oVery strange feeling!

I know you want to go back to the Fool ultimately. As I have said to you in copious emails, I think that is a mistake. I believe in other reader's eyes the sincerity with which you post here on nofees gets brought into question - almost like a girlfriend who is biding her time until the guy she really wants is available & then she'll dump her current boyfriend.

For the time being, I have been dealing with issues surrounding FIRE investing from accumulation to distribution issues but not addressed the calculating of SWRs etc. I don't ultimately think it is an issue that can be resolved as one doesn't know the future results. My simplistic idea of estimating returns based on asset allocation & past results but without using a past history play by play playbook, hasn't been refutted or the merits of it discussed after I raised it. That in combination with at least 40% in cash type investments make a simple yet deceptively powerful combination.

I'll start to hack away at the SWR issue when I've read Bernstein's books, Shiller's book and improve my formula math so I can understand Gummy's graphs, John's equations (I have him cornered and coming around to my way of thinking and then he sneakily throws equations at me... Grrrr) and the validity (or not) of all the SWR studies to date. I'm like that slow-ass jugganaut you see in your rear view mirror picking up speed despite the improbability that it'll beat your Porsche in a long race where there is no finish line but winners & losers all the same.. (I like to make this a little bit competitive as it forces me to raise my thought processes to new levels & it keeps my shit quick!) :P

Petey

hocus wrote: My ultimate goal is to take over as the Board General at the Motley Fool board. Way back in 1999, I began thinking that it would be good if the community of people interested in FIRE had access to a discussion board where they could share insights on the subject. That's why I put all that effort into building up the REHP board back in the year 2000. I wasn't building up that board just so that it would serve as a learning resource for a few months or a year. I wanted it to serve as a learning resource for many years to come, for decades into the future. I very much want aspiring early retirees to be able to use that board for that purpose.
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Post by ElSupremo »

Greetings hocus :)
My ultimate goal is to take over as the Board General at the Motley Fool board.


Correct me if I'm wrong, but haven't you been kicked off of that board? :wink:
"The best things in life are FREE!"

www.nofeeboards.com
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Post by hocus »

The sincerity with which you post here on nofees gets brought into question - almost like a girlfriend who is biding her time until the guy she really wants is available & then she'll dump her current boyfriend.

Lest I be accused of leading on any fair maidens, all should know that it is the TMF board that is my True Love. It is the Motley Fool board that I intend in days to come to make the most successful board on the face of Planet Internet. Understood?

This is the sister board. Just because I pledged myself to another first does not mean that I cannot develop a genuine but reserved affected for the sister. I love you guys too, OK? But like a sister. Don't be getting any ideas.

Perhaps if you had come along first, this board would be the One True Love, and the TMF board would be the sister. It didn't happen that way. It happened the other way.

This does not mean that we should not be friends, does it? I knock myself out for my beloved, and you know what else? I knock myself out for my beloved's sister too. I do so and In will continue to do so. I never did anything to put funny ideas in your head. I did not play you for the fool. I told you that I loved the other, and I told you that I would knock myself out on your behalf too. And I will.

The sister is going to sit on the throne. She will be the Queen of the Internet. You will be the Princess of the Internet, the second most exciting board on the internet.

Or you will meet your true love, and that dashing young price will make you Queen of the Internet and my love will have to content herself with second place.

I want my board to be first.. It's not reasonable for you to want me to want something different. But I believe that, by making my board first, I can do this board a whole bunch of good, more good than I could do it by posting here 16 hours a day. I like this board. I want it to thrive. I just don't feel the passion for it that I feel for the other.

I hope this is all understood. I never misled anyone. I have been careful to state my intentions from our first get-together (it wasn't really a date). Those intentions have been the same dating back to late 1999. I'm not in this for the short-term. Some others are, not me. My love is a true love,and true love---

--conquers all!

Doesn't it?
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Post by peteyperson »

Okay. You blow off a 4 paragraph post with some thought out stuff in it and choose to focus on a couple of lines instead.

lol

Okay.

Petey


hocus wrote: The sincerity with which you post here on nofees gets brought into question - almost like a girlfriend who is biding her time until the guy she really wants is available & then she'll dump her current boyfriend.

Lest I be accused of leading on any fair maidens, all should know that it is the TMF board that is my True Love. It is the Motley Fool board that I intend in days to come to make the most successful board on the face of Planet Internet. Understood?

This is the sister board. Just because I pledged myself to another first does not mean that I cannot develop a genuine but reserved affected for the sister. I love you guys too, OK? But like a sister. Don't be getting any ideas.

Perhaps if you had come along first, this board would be the One True Love, and the TMF board would be the sister. It didn't happen that way. It happened the other way.

This does not mean that we should not be friends, does it? I knock myself out for my beloved, and you know what else? I knock myself out for my beloved's sister too. I do so and In will continue to do so. I never did anything to put funny ideas in your head. I did not play you for the fool. I told you that I loved the other, and I told you that I would knock myself out on your behalf too. And I will.

The sister is going to sit on the throne. She will be the Queen of the Internet. You will be the Princess of the Internet, the second most exciting board on the internet.

Or you will meet your true love, and that dashing young price will make you Queen of the Internet and my love will have to content herself with second place.

I want my board to be first.. It's not reasonable for you to want me to want something different. But I believe that, by making my board first, I can do this board a whole bunch of good, more good than I could do it by posting here 16 hours a day. I like this board. I want it to thrive. I just don't feel the passion for it that I feel for the other.

I hope this is all understood. I never misled anyone. I have been careful to state my intentions from our first get-together (it wasn't really a date). Those intentions have been the same dating back to late 1999. I'm not in this for the short-term. Some others are, not me. My love is a true love,and true love---

--conquers all!

Doesn't it?
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Post by hocus »

Correct me if I'm wrong, but haven't you been kicked off of that board?

The rumors are true. A big hairy individual has seduced my Lady through use of flattery and deception. She loves me, but the things she has been told about me are so awful. He has some money, and there are many who say he is a fine choice. She is so confused. She doesn't know what to do!

Her heart is true. I will find a messenger to deliver a letter explaining everything. Not now. He is watching her closely now. Later. When he sleeps.
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Post by hocus »

Does it seem absurd that the less mathematically attuned person is the most confident of the result?

The irony of the fact that I am claiming a sort of expertise on a numbers-oriented issue is not lost on me, Ataloss. There are times when someone asks me my telephone number, and I have a struggle coming up with it. hocus and the world of numbers are not generally on friendly terms with each other.

I have a theory that it is my lack of facility with numbers that has in a strange way provided me an edge on this thing. People who are comfortable with numbers see those spreadsheets packed full of them and are impressed. "This stuff must be valid," they think, "just take a look at all the calculations that were done!"

That stuff never impressed me. I was in stocks when I first started looking at the question, like everyone else. It was important to me to know the true SWR because I was putting my family's future at risk if I messed up. So I was not willing to take any study on faith. I needed to be sure that it was right, that it made sense.

It never made sense to me not to consider changes in valuation. My skepticism is rooted not in an analysis of numbers, but in common sense. Because the idea that what is safe doesn't change with changes in valuation didn't make sense to me, I looked at the data primarily for the purpose of figuring out what the flaw in the conventional approach was.

When you look at the data with that goal in mind, it is not too hard to figure out what is going on. It just sort of hits you when you see that the failure years are all bunched in retirrement start-years where there was high valuation. That sort of thing wouldn't happen if it really were true that valuation has no effect on what is safe.

That was the essential insight that got me on the right road. I never did much with it until The Great Debate because I just don't have the ability to put together spreadsheets and such. During the debate, however, there has been a lot of fresh research put forward. Not one of these analyses has caused me to lose confidence in that first critical insight. Every single thing I have seen supports me in my initial common-sense observation that changes in valuation levels simply must have an effect on what is safe.

I was 90 percent sure before The Great Debate began. I am 99 percenrt sure now. It would take some amazing discovery showing that valuation really does not have an effect for me to back away from it now. Anything is possible. But I think that it is highly uinlikely that we are going to see something like that.

I think it is a good thing to be comfortable with numbers. I wish I was more so. But there are times when I think it is a good thing to forget about what the numbers seem to say and just ask yourself whether what they seem to say makes any sense or not. There are occasions when common sense will take you farther than a detailed numbers-crunching exercise.
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ataloss
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Post by ataloss »

In recent posts on the board between hocus and myself, it has become perfectly clear that hocus understands the limitations of using backward-looking data to predict future results. Indeed, you cannot predict them. You can only use them as a good indicator.


Edited for clarity--Hocus is now clear that future returns can not be predicted with a certainty. He has an unrealistic concept of the reliability of estimates of future safe withdrawal rates. He seems to think that if you have sufficient data of sufficient quality you can enter this in a mathematical "tool" and determine a highly reliable future swr.

(sorry if the first wording left open the possibility that I was saying that you can't make any sort of prediction about future returns)

You're using the quote by hocus below to muddle the situation. Hocus was stating below that excluding certain data to get a result you prefer is an invalid methodology.


Hocus has never renounced his silly quote but has (from what I have seen) merely restated it in various ways.

But there was no exclusion of data and this continued claim is absurd.

So Hocus was not saying that you can determine the future results and the actual safe withdrawal rate, but merely that you need to use all available valid data to generate a theoretical safe withdrawal based on past data (with the acknowledgement that it may not pan out out way, any resemblence to people real or imagined is purely coincidental!)



Hocus has various statements about what a swr is and isn't but he has no actual methodology and his criticism of "traditional " studies is unreasonable.
You're either not getting his point clearly or you're deliberately muddling it to try and confuse people.


I am sorry if I no longer have infinite patience with hocus but this has all been discussed before at great length. I am, I admit quite unclear on what it is that hocus has discovered in the 14 months he has spent on the issue.

I must admit that I am totally indifferent to the hocus goal of taking over the REHP at TMF. This seems unlikely at best. Much of this exercise seems like an effort by hocus to disagree with anything intercst might have said.

Several people on this board have used interesting alternative approaches to estimating swr (changing the sequence of years, using historical sequences with high expense ratios to simulate low returns and , of course, Monte Carlo.)

Hocuses formulation:
The data is there is a mathematical formula exists so there will be a definite swr is wrong.

Interesting work in swr could include looking at the value of alternative asset classes in reduction of variability, variable withdrawals, systems of cash buffers. The quest for an unarguable swr is doomed
Last edited by ataloss on Fri Jul 18, 2003 10:46 am, edited 2 times in total.
Have fun.

Ataloss
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Post by hocus »

Hocus is now clear that future returns can not be predicted

I am not. William Bernstein says on Page 54 of "The Four Pillars of Investing" that: "The Gordon Equation provides an accurate way to predict long-term stock market returns."

The semantics game you are playing here is to take my assertion that SWR analysis does not predict the future, and suggest that I was saying that long-term returns cannot be predicted within a reasonable margin of error.

SWR analysis does not predict the future. A SWR analysis tells you what withdrawal percentage will work if the future is like the past and if the worst-case scenario turns up. There is no prediction being made that the worst-case scenrerio will turn up. It is a "what-if" exercise to determine what is safe. The fact that the worst-case does not end up turning up for you does not prove that the tool did not work because the tool does not aim to predict whether it will or not..

Anyone expecting a SWR analysis to be able to predict the future is expecting something that cannot happen because the tool is not designed to do this. It tells you what withdrawal percentage is safe, that is all.

Anyone who believes that it is not possible to make reasonably accurate predictions of long-term stock returns through use of the Gordon Equation either has not read Bernstein's book or does not agree with it. He says that: "The Gordon Equation is as close to being a physical law, like gravity or planetary motion. as we will ever see in finance."

"Which would you rather know: the market return for the next six months,. or for the next 30 years? I don't know about you, but I'd much rather know the latter. And, within a reasonable margin of error, you can." That's Bernstein talking, not hocus. If you don't like it that long-term stock returns are predictable within a reasonable margin of error, take it up with him, not me.

Or take it up with whoever you think is responsible for this historical reality. The Gordon Equation has been tested and it has passed the test. I have reported to you what the data says about what is safe, that's it. It' not my fault if some others have caused you to form some expectations not in concert with the realities revealed by the historical data. Take it up with those who have caused you to form expectations not in line with what the historical data reveals as likely.
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Post by hocus »

The quest for an unarguable swr is doomed

Only because we do not have access to perfect data. If we had perfect data, we could calculate the SWR perfectly. It is a mathematical construct. You take all the numbers for all the factors that influence the question, you add them up, and you have the answer. It is an objective exercise.

It is not invalid for two different analysts to use different ways of estimating the effect of a factor when neither has access to perfect data. In those circumstances, there is a good reason for the two researchers to take a different approach to the analysis.

There is never a good reason for a researcher to deliberately exclude data that he knows as a matter of mathematical certitude affects the result of the question being examined. That's a foul ball.
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Post by ataloss »

Only because we do not have access to perfect data. If we had perfect data, we could calculate the SWR perfectly. It is a mathematical construct. You take all the numbers for all the factors that influence the question, you add them up, and you have the answer. It is an objective exercise.


If we had that crystal ball we wouldn't need to calculate swr :wink:

the fact remains that you have no idea how accurate Bernstein's swr estimate might be
Have fun.

Ataloss
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